A 401K is a type of retirement plan that is especially designed for workers. Typically, within the United States, a traditional 401K is available through a person’s place of employment. They are able to save money for retirement which can accrue interest over time. An additional perk to using the 401K is that no income taxes are paid on these moneys until the owner actually withdraws the cash. Many who are investing in them don’t even know that they are sabotaging their own retirement fund.
Not Taking Advantage of Contributions
Often with a 401K, there is opportunity for the investor’s employer to help contribute to his fund. For instance, after working so many predetermined years with a company, the employer will agree to match the worker’s investment.
Of those under the age of 40, 47% are not investing enough to be matched. This is basically throwing away free money, and can sink a 401K account’s potential value.
Scrimping on Investing
In addition to not investing enough to be matched by their employer, many people are hurting their 401K accounts by simply not investing enough to begin with. Sure, it’s great fun to have money to spend right now, but it will absolutely not be a laughing matter when retirement age arrives and their isn’t enough money to live on available.
Tapping Into Your 401K Early
A person can access their 401K early if they would like. This means that they may remove part of the money for their use today. Perhaps they’re heavily in debt and are to the point of relying on payday loans to get by. While using a 401K may seem like a godsend, it isn’t a course of action to take lightly. Not only is the overall amount of the account decreased, but so is the amount of money that can accrue interest.
Retiring Too Early
It seems that more and more people have their eyes set to retiring at 50 or 55 these days, but this may not be the best way to go. Tapping into that money at a younger age means that the investor will need many more funds to live on for the rest of their lives. It also means that there’s less room for the cash to grow. Unless a 401K contributor has put in a considerable amount of their annual pay diligently, retiring at this age can simply leave them broke.
Having a 401K is important. Equally important is protecting that 401K so that it will be enough to completely finance a person’s retirement.